2017-18

Final Draft

Corporate Law-II
“The status of a corporation as a citizen under constitution”

Submitted to: Submitted by:

Dr. Manish Singh Shobhit Mani Gopal

Associate Professor (Law) Roll-129 (6thsem)

Dr. Ram Manohar Lohiya National Law University, Lucknow Sec-B

 “The Status of a corporation as a citizen under constitution”

ACKNOWLEDGEMENT
I take this opportunity to express my profound gratitude and deep regards to my guide (Dr. Manish
Singh) for her exemplary guidance, monitoring and constant encouragement throughout the course of
this thesis. The blessing, help and guidance given by him time to time shall carry me a long way in
the journey of life on which I am about to embark.

I would like to express my gratitude towards my parents & members of Dr. Ram Manohar Lohiya
National Law University for their kind co-operation and encouragement which help me in
completion of this project.

I would like to express my special gratitude and thanks to all those people who gave me attention and
their invaluable time.

My thanks and appreciations also go to my friend and classmates in developing the synopsis and
people who have willingly helped me out with their abilities.

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 “The Status of a corporation as a citizen under constitution”

TABLE OF CONTENT

1. Synopsis 4

2. Introduction 5

3. What a corporation is? 6

4. Pre-State Trading Corporation case 6

phase

5. Post-State Trading Corporation case 8

phase

6. Conclusion 10

7. Bibliography
11

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 “The Status of a corporation as a citizen under constitution”

Synopsis

BACKGROUND:

Corporation in the last century have made vast progress in trade and business sector in a country and
if we compare it in terms of economic power, they often outweigh even state. This change is vital in
the context of Indian constitution, as it was framed in the mid-twentieth century with a view of state
controlled economy and was not drafted in a manner to include corporation in the clear sense. This
change and development warranted the rethinking and legal research on the constitutional provisions
in State Trading Corporation v. The commercial Tax officer1where Supreme Court of India answered
a very crucial question i.e. whether a corporation is included in the folds of ‘citizen’ in Part-III of the
constitution. Being ultimate protector of Fundamental Rights SC answered this question in a very
restrictive manner by excluding a company of being citizen under constitution. Current position
according to above ruling prima facie looks rock solid but is very complex when looked through the
glass of every right prescribed under constitution.

Author in the final paper argues on the current position and status of a corporation as citizen of India
in the light of State trading corporation case2 and other relevant cases and tries to portray a clear
picture of this complex issue.

RESEARCH PROBLEMS:

The research problem over here is the status of a company as a citizen and can it claim fundamental
rights under Part-III of constitution. This would be achieved by reading various newspapers, articles,
books, journals etc.

OBJECTIVE:
Objective of this study is to portray the current position of a company or corporation as a citizen of
India.

1
1963 AIR 1811, 1964 SCR (4) 89
2
Id.

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 “The Status of a corporation as a citizen under constitution”

RESEARCH METHODOLOGY:

Doctrinal methodology: It is concerned with analysis of available literature sources on the topic and
it has been developed and applied .Various sources such as books, articles, journals and newspaper
have helped me for my research.

TENTATIVE CHAPTERISATION:

 Introduction:This head describes the topic in brief.

 Statutes Inclusion: This head will chalk out the various legislations including the
constitution.
 Judicial Approach: This Chapter deals with the judicial approach and describes the
various cases laws.
 Conclusion: This head will contain the findings of the author and suggestions.

Final Paper

Introduction:

Corporation in the last century have made vast progress in trade and business sector in a country and
if we compare it in terms of economic power, they often outweigh even state. This change is vital in
the context of Indian constitution, as it was framed in the mid-twentieth century with a view of state
controlled economy and was not drafted in a manner to include corporation in the clear sense. The
studies of corporate citizenship only dwelled into the social responsibilities of businesses carried out
by the corporations whereas it has somehow neglected their constitutional rights.

This change and development warranted the rethinking and legal research on the constitutional
provisions in State Trading Corporation v. The commercial Tax officer3where Supreme Court of
India answered a very crucial question i.e. whether a corporation is included in the folds of ‘citizen’
in Part-III of the constitution. Being ultimate protector of Fundamental Rights SC answered this
question in a very restrictive manner by excluding a company of being citizen under constitution,
which is according to me is inconsistent with the F.R’s in Indian Constitution. Current position

3
1963 AIR 1811, 1964 SCR (4) 89

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 “The Status of a corporation as a citizen under constitution”

according to above ruling prima facie looks rock solid but is very complex when looked through the
glass of every right prescribed under constitution. State Trading Corporation case4 was ruled by nine
judges and after this case when similar questions were asked to S.C, its approach was more as a
protector of Fundamental Rights but the bench ruling the same has to work around as the above case
had largest bench till now. This resulted in the confusion of the correct understanding of the status of
a corporation as citizen.

Author in the paper argues on the current position and status of a corporation as citizen of India in
the light of State trading corporation case5 and other relevant cases and tries to portray a clear picture
of this complex issue. The discussion basically revolves around the post-state trading corporation
case6.

What a corporation is?

Word Corporation is derived from a Latin word ‘corpus’ which means a ‘body’ or ‘body of people’.
Under the Roman Law we can find certain entities under ‘universitas, corpus or collegium’, which
possess some rights and liabilities such as right to own property and perhaps make contract, sue and
be sued. The somehow same is being carried under the old companies Act7 as well as the new one8.
Sec. 2(20) of the Companies Act, 2013 defines a company which says “company means a company
which is incorporated under this act or under any previous law”, but the section does not give any
technical meaning, therefore one can conclude that the reason of it being open-ended is that a
company is not just a group of people or a legal or juristic personality.

A much better or clear definition of company is given by Lord Justice Lindley“as an incorporated
association which is an artificial person, having a separate legal entity, with a perpetual succession, a
common seal, a common capital comprised of transferable shares and carrying limited liability. It is
called an artificial person because of its very nature that law alone can give birth to a company and
law alone can put it to an end.”9Which clearly states it as an artificial entity and going by this will
surely exclude a corporation from Part III of the constitution as it is only available to citizens who
are generally perceived as natural person. The same reasoning was applied in the state trading case 10.

Pre-State Trading Corporation case phase:

4
State Trading Corporation v. The commercial Tax officer, 1963 AIR 1811, 1964 SCR (4) 89
5
Id.
6
Id.
7
Companies Act, 1956
8
Companies Act, 2013
9
State Trading Corporation (n 2)
10
Id.

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 “The Status of a corporation as a citizen under constitution”

One of the important cases decided before state trading corporation case is ChiranjitLalChowdhuri v.
The Union of India11 where judges took the view of including corporations under part III of the
constitution, court held that ‘The fundamental rights guaranteed by the Constitution are available not
merely to individual citizens but to corporate bodies as well except where the language of the
provision or the nature of the right compels the inference that they are applicable only to natural
persons. An incorporated, company, therefore, can come this Court for enforcement of its
fundamental rights and so may the individual shareholders to enforce their own; but it would not be
open to an individual shareholder to complain of an Act which affects the fundamental rights of the
company except to the extent that it constitutes an infraction of his own rights as well’.

If court in State Trading corporation case had followed the similar reasoning and looked on the
impact or effect of judgement rather than at the form of the corporation, the result would have been
more desirable. As if the corporations fundamental rights are infringed it will surely affect its
shareholders who are citizen and whose right should be protected under constitution of India. What it
did was it left the shareholders whose FR’s are infringed remediless.

Next head discusses the Post State trading Corporation case, but before it author explains in brief
what was ruled in this particular case.

State Trading Corporation v. The commercial Tax officer12:

The facts of the case in brief are that the government of Andhra Pradesh and Bihar levied sales tax
on the State Trading Corp. for its commercial activities and served notices demanding the payment.
State trading Corporation is a corporation of Central Government incorporated under Companies
Act, 1956. The Petitioner moved to S.C under article 32 to quash the notices on the ground that the
assessment orders and notices are voilative of fundamental rights guaranteed under article 19(1)(f)13
and (g)14 of the constitution.

Question before SC’s nine judge bench was whether the State Trading Corporation, a company
registered under Indian Companies, Act 1956, is a citizen within the meaning of Art. 19 of the
constitution and can ask for the enforcement of fundamental rights granted to citizens under
constitution and can they claim F.R under part III of the constitution.

11
ChiranjitLalChowdhuri v. The Union of India,1951 AIR 41, 1950 SCR 869
12
State Trading Corporation (n 2)
13
To acquire, hold and dispose of property
14
To practice any profession, or to carry on any occupation, trade or business

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 “The Status of a corporation as a citizen under constitution”

Majority judgement was delivered by Sinha, C.J, held that word ‘citizen’ intended to refer only to
natural persons and therefore a juristic person like corporation cannot claim the status of citizen
under Part III of the constitution. His reasoning was that Part II and Indian Citizenship Act, 1955
both are exhaustive on the question of citizenship in India and according to them only natural
persons can be citizens. He further said that in Part III certain F.R’s are available only to citizens15,
whereas certain to any person16.The expression ‘person’ has been defined to include corporate bodies
also17. These findings compelled him to conclude that constitution makers were careful enough to
use word “citizen” whenever they felt that particular right was to be enjoyed exclusively by citizens.
Justice Hidayatullah in his concurrent opinion held the same with an additional reasoning. He cited
several articles where expression ‘citizen’ and ‘citizenship’ was used and pointed out that those
articles cover only natural persons18.

One behalf of minority, Justice Das Gupta rejected the preliminary objection and stated that the
shareholders carrying business as a corporations are citizens and natural persons therefore can’t be
denied rights under Art. 19. He also said that framers of the constitution were aware of developments
in U.S.A i.e. piercing the corporate veil and granting remedy to citizen shareholders. Therefore it
can’t be said when the provisions does not expressly exclude corporations from claiming F.R’s.
Justice Shah supported minority opinion and concluded if restrictive interpretation of citizen is
adopted, corporations would have rights such as right to equality, right against compulsory
acquisition of property without compensation etc., but the most important right for a corporation i.e.
right to trade would be denied. On these grounds he held in the favour of a liberal construction of the
word ‘citizen’ in Art. 19.

This landmark judgement didn’t discussed about piercing the corporate veil in detail otherwise the
conclusion of majority would have been different, as the effect of judgement is ultimately on the
shareholders considering the question on their point of view would have not resulted in curbing FR’s.

Post-State Trading Corporation case phase:

If going through the literal and strict interpretation of meaning of corporation as above mentioned19 it
can be easily concluded that as the F.R’s are only for natural persons or citizens and corporations or
companies are excluded from the ambit of challenging any law or order on the grounds of being

15
Articles 15,16,19 and 29, See State Trading Corporation (n 2), page 3,4
16
Articles 14,20,21,22,25,27 and 31 (n 13)
17
The general Clauses Act, 1897 “person ” as inclusive of “any company or association or body of individuals whether
incorporated or not”
18
State Trading Corporation (n 2)See, page 15
19
Under head what a corporation is?

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 “The Status of a corporation as a citizen under constitution”

violative of part III of the constitution as they are nor the natural person or citizen of India, same was
the ruling in state trading corporation case, but problem arose when the judgements dealing with the
similar questions answered the same in a modified way. Few decisions after state trading corporation
case are Telco20, Bank Nationalisation21, and Bennetcoleman case22.

In Tata Engineering and Locomotive Co. v. State of Bhiar23 or “Telco case” petitioners challenged a
levy of sales tax imposed on them under Art. 32. As the bench in this case comprised of five judges,
therefore was bound by Supreme Court’s previous decision in State Trading Corporation24.
Therefore respondent side argued to follow the same but they argued that in State Trading Corp. case
court was not asked to dwell on the question of piercing the corporate veil and this ought to be
considered in Telco case. SC applied the doctrine of lifting the veil and held that shareholders can
file for their infringement of right protected under constitution.

Next was the R.C. Cooper v. Union of India25 (Bank nationalization case) which was decided by
eleven judge bench. In this case constitutional validity of Banking Companies (Acquisition and
Transfer of Undertakings) Ordinance was challenged by a shareholder, the director and current
account holder of the bank. Court ruled that the State Trading Corporation will have no application
in this case as the petitioners are claiming their own rights rather than of company. Court granted
remedy in this case which was independent or the harm or violation of rights of that company.
Impact of this judgment was that now SC protected the rights of individuals but they have to prove
the violation of their fundamental right which has to independent of the detrimental caused to the
company.

Last case which I will be discussing in detail this head is Bennett Coleman v. Union of India26
(Bennett Coleman case). It is a five judge bench decision which reveals new dimension of Indian
position regarding protection of FRs of a company and its shareholders. In this case writ petition was
filed by the newspaper company, a shareholder, a reader and three editors of the newspaper against
restrictions on the newspaper. SC recognized that the individual rights to freedom of speech and
expression of editors, directors and shareholders are being exercised by means of printing and
spreading newspaper. Therefore court concluded that restriction on newspaper would impact
fundamental rights of the shareholders of the company and that hence that remedy could be denied. It
20
Tata Engineering and Locomotive Co. v. State of Bihar, AIR 1965 SC 40
21
R.C. Cooper v. Union of India, AIR 1970 SC 564
22
Bennett Coleman v. Union of India, AIR 1973 SC 106
23
Tata Engineering and Locomotive Co. (n 18)
24
State Trading Corporation (n 2)
25
R.C. Cooper (n 19)
26
Bennett Coleman (n 20)

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 “The Status of a corporation as a citizen under constitution”

was held that even though a company was a petitioner in this case but this will not prevent the court
from giving relief to the shareholders, editors, printers, whose rights are at stake.

It appears that court have treated restriction imposed on newspapers as a separate class and have not
applied State trading Corporation27, Telco28 and Bank Nationalization29 cases in these cases. As in
Express Newspapers30 and Sakal Newspapers31court granted relief to shareholders and editors
though restrictions were imposed on the newspaper companies.

Conclusion:

Law relating to corporate citizenship in India is not in existence yet, the major act 32also does not talk
about the same, whereas the constitution of India is also silent or i may say does not provide any
express provision which would have helped in settling the position. Before State Trading
Corporation33 SC in ChiranjitLalChowdhuri34dealt with the question which was only related to the
infringement of FR and court included corporation within the folds of FR, but this case did not
discussed about the citizenship of a corporation, which was finally decided by the nine judges in
State Trading Corporation case. Questions answered in STC35 case no doubt was of great
constitution importance which were not addressed in any previous decisions. But as suggested above
court’s approach was conservative and while applying the provisions strictly SC refused to lift the
corporate veil and left the individuals without remedy. Further paper discusses the post-State Trading
Corporation phase wherein Telco36, Bank Nationalisation37, and Bennetcoleman38were discussed
which depicts the confusion regarding the position of corporation as a citizen under constitution.

Although STC39was binding on Telco40but it virtually did not accepted its reasoning and lifted the
veil for providing remedy to petitioners. Next is R.C. Cooper41andBennett Coleman case42where SC
provided remedy only because the petitioners were individuals. Overall examination shows that after

27
Tata Engineering and Locomotive Co. (n 18)
28
Tata Engineering and Locomotive Co. (n 18)
29
R.C. Cooper (n 19)
30
Express Newspapers Pvt. Ltd. V. Union of India, AIR 1958 SC 578
31
Sakal Papers Pvt. Ltd. v. Union of India, AIR 1962 SC 305
32
The Companies Act, 2013
33
State Trading Corporation (n 2)
34
ChiranjitLalChowdhuri (n 9)
35
State Trading Corporation (n 2)
36
Tata Engineering and Locomotive Co. (n18)
37
R.C. Cooper (n 19)
38
Bennetcoleman (n 20)
39
State Trading Corporation (n 2)
40
Tata Engineering and Locomotive Co. (n18)
41
R.C. Cooper (n 19)
42
Bennett Coleman (n 20)

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 “The Status of a corporation as a citizen under constitution”

STC43 court somehow reacted as protector of fundamental rights but the conformity is not achieved
which is why still one cannot chalk out the clear image of corporation as a citizen. The need of hour
is of legislatures to address these questions in parliament and come up with an Act which may
solidify this position and may protect the corporations who is ultimately the citizens of India.

Bibliography:

Books:
 Taxmann’s Company Law ,Dr. G.K Kapoor(Nineteenth Edition)
 Indian Constitutional Law, M.P. Jain (Seventh edition)
 Constitutional Law of India, Dr. J. N Pandey (Fifty One Edition)
Online Sources:
 Manupatra
 SCC Online

43
State Trading Corporation (n 2)

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